Triple-check multiple deposit directions

Monday Jan. 25, 2010
Posted 2 p.m. EDT

We certainly like to share and share alike. That tendency even shows up on our tax returns.

The IRS option to split refund money into multiple accounts is quite popular. But you need to be careful to ensure that you do indeed get your money.

The adage "garbage in, garbage out" takes on a new and potentially costly meaning in these cases. If you provide the IRS with wrong account information, you could lose your refund entirely.

The IRS specifically notes on Form 8888 that the agency assumes no responsibility for refunds lost in the event a taxpayer entered the wrong account information. And while the agency will reissue a paper check, few questions asked, replacing an electronic deposit is darn near impossible.

The problem is privacy rules, both at financial institutions and on Uncle Sam's side. Everyone involved might well agree that there's been a snafu, but neither the bank nor the federal government can just go poking around in private citizens bank accounts to see what went into them.

If you transpose an account number but it's an active one at your bank, the money goes into the account belonging to someone else. Then you have to depend upon the honesty of the accountholder to acknowledge the inadvertent deposit and hand the money back, either to the bank or the IRS.

In some cases, banks, upon realizing that the deposit was misdirected because of a misplaced numeral, have worked with customers to get the funds to the appropriate account. But any tracking of and redepositing of refunds erroneously sent to wrong accounts is solely between the bank and its customers.

If the account number is for a nonexistent account, the bank usually sends the money back to Washington. But rather than being reissued, that's where it stays. The problem then is that the errant refund goes to Federal Financial Management Service, the main U.S. Treasury depository, which is outside the IRS's jurisdiction.

While misdirected direct deposits don't happen a lot, such mistakes do occur. For Nina E. Olson, the National Taxpayer Advocate in Washington, D.C., who monitors IRS activities, once is too much. That office has been lobbying for years for the IRS to find a way to make electronically errant refunds easier to replace.

Until then things change, though, the burden is squarely on your shoulders. Be very careful in filling out your multiple deposit information.

Read more tax blogs.


Show Bankrate's community sharing policy
          Connect with us

Our tax expert Kay Bell provides resourceful tips and advice to help you stay prepared for filing.


Connect with us